1/ I’m extremely bullish on legal tech startups (ie. tech vendors) that target corporate legal departments (CLDs) as opposed to law firms. Here’s why.
2/ CLDs like to buy subscriptions. Law firms prefer to buy a usage-based pricing. There are some exceptions but this seems to be the general rule. I learned this firsthand when I sold e-discovery tech a few years ago.
3/ The biggest challenge to law firm sales is the org structure. Many lack a centralized buyer who purchases on behalf of the organization. Instead, buying power rests among a distributed group of partners who generally do as they please. It’s a confederation, not a nation.
4/ Now you can get around that by selling a limited number of licenses to small groups of lawyers. They call it “land and expand." Problem is, expansion will be impossible (see previous tweet) so deal size will always be too small to justify an “enterprise sales” approach.
5/ Attempting expansion at a Biglaw firm was one of my first initiatives as a legal tech salesman. Spoiler alert: It didn’t work. Individual offices operated independently. And each office contained multiple clans of lawyers who did things very differently from each other.
6/ Another problem is that many firms prefer to pass the cost of technology back on to their clients. Which means the firm: (1) is not the ultimate decision maker, which lengthens sales cycles and (2) will always prefer one-off usage-based pricing vs. subscription pricing.
7/ Usage based pricing seems to be highly disfavored by tech vendors. I believe it’s because non-subscription revenue is disfavored (for good reasons) and impacts valuation. Which affects the vendor's ability to raise subsequent rounds. I’m not an expert on this though.
8/ Then there’s the belief that “efficiency = fewer billable hours = less revenue.” I don’t have enough firsthand knowledge about how law firms truly feel about this, but at the very least we can agree there’s going to be some conflict of interest that impacts tech adoption.
9/ Now let’s look at corporate legal departments (CLDs). Not only do they prefer the predictability of subscription pricing, they benefit from efficiency generated by technology.
10/ The legal operations function is also growing rapidly (just look at the growth of CLOC) which is helpful to tech vendors because: (1) now there’s an efficient way to get products in front of buyers; and (2) legal ops can help educate and sell the technology internally.
11/ Isn’t it a big challenge for CLDs to acquire budget to purchase the software? It absolutely is. I’ve lost deals because even though I successfully sold the GC, the GC himself/herself failed to secure budget to make the purchase. It’s a real problem but I’m not too worried.
12/ First, CLDs are increasingly cross functional and can tap other departments’ budget. I’m thinking of procurement and finance, but there may be others. The specific department budget they can access may depend on the nature of the tech they’re looking to acquire.
13/ Second, as the legal ops department becomes more sophisticated, they’ll become experts at securing budget. They’ll be able to guide vendors to prove ROI, convince stakeholders to sign off, and measure efficiency gains. Which will help CLDs secure more budget in the future.
14/ Sounds great! So everyone wins. Everyone, except for outside law firms I guess. Because technology will enable CLDs to do more work in-house efficiently, and cut down their reliance on outside counsel for routine tasks. I've seen this firsthand.
15/ A personal story: I once had a deal that got blocked because the GC’s outside counsel got involved in the sales process. Next thing I knew, the deal evaporated. When they see the tech, firms know what’s coming. They're not dummies.
16/ It will become increasingly easy to sell tech subscriptions to CLDs. It will also become increasingly difficult to sell subs to law firms. Especially to Biglaw who can pay for expensive enterprise software licenses. Because they can also afford to be late adopters.
17/ I have a few additional thoughts but this thread has gone on for too long so I’ll stop here. I welcome all comments and disagreements.
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